LONDON, March 15 (Reuters) - European shares retreated from
4-1/2 year highs and gold rose on Friday as investor enthusiasm
for riskier assets, which had been supported by signs of growth
in the U.S. economy, began to wane.

Wall Street also looked set for a mixed start as traders
wait for fresh insight on the economy's performance with the
benchmark S&P 500 index sitting within a few points of
its all time high.

"I think there is a feeling that the risk appetite is gone
too far and I wouldn't be surprised to see equities pulling back
and gold coming back into favour a bit in coming days," Standard
Chartered analyst Dan Smith said.

Gold inched up 0.2 percent to $1,592.60 an ounce, on
its way to a weekly gain of nearly one percent.

The dollar took a breather from its recent sprint higher as
well, slipping back 0.4 percent against a basket of major
currencies and moving away from the seven-month high
touched on Thursday.

While the euro rose 0.4 percent to $1.3062,
recovering from Thursday's three-month low of $1.2911, to be on
course for a second consecutive weekly gain against the dollar.

OPTIMISM RULES

Investors had been buying riskier assets this month as data
on U.S. jobs, retail sales and factory output have pointed to
the recovery in the world's largest economy gaining momentum,
despite tax rises and government spending cuts.

A lack of signs of inflation in the numbers has also eased
fears the Federal Reserve would need to consider an early exit
from its aggressive quantitative easing (QE) policy that has
helped support asset prices around the world.

The encouraging outlook has seen the Dow Jones Industrial
index set record highs over the past 10 days to post its
best winning streak since late 1996.

Europe's broad FTSEurofirst 300 index fell 0.4
percent on Friday but is still on course for its fifth weekly
rise and hovering near its best levels since mid-2008.

MSCI's all-world index, which tracks 9,000
stocks in 45 countries, was set for a second consecutive weekly
rise for a gain of 6.75 percent this year so far.

DEBT STABILITY

Europe's crisis-sensitive bond markets were largely steady
despite the increasing fears that Italy's political stalemate
may mean new elections in October which could result in an
anti-austerity party or coalition taking charge.

Italian bond yields did ease as the country's parliament
convened for the first time since last month's vote, with
parties still deadlocked over forming a government.

"If there is no capable government any time soon ...
(Italian bonds) should come under pressure again," said Viola
Julien, a fixed income analyst at Helaba Landesbank
Hessen-Thueringen.

Italian 10-year yields were 5 basis points
lower on the day at 4.59 percent.

Bond investors were showing little reaction to developments
at a summit of 27 European Union leaders in Brussels, which
signalled support for slightly more growth-friendly spending
policies after French President Francois Hollande challenged
German-driven fiscal austerity.

U.S. Treasury bonds, like the dollar, were little changed as
investors waited for consumer prices data at 1230 GMT,
industrial output number at 1315 GMT and a consumer sentiment
reading at 1355 GMT.

The 10-year Treasury note yield was steady at 2.03 percent
.

JAPAN SURGE

Meanwhile the yen and Japanese stocks rose following
approval by the Japanese parliament of Haruhiko Kuroda as the
next governor of the Bank of Japan. Markets expect the BOJ under
Kuroda to take more aggressive easing measures, maybe as soon as
its next policy meeting on April 3-4.

Japan's Nikkei stock average rose 1.3 percent to a
new 4-1/2-year peak on the appointment, while the MSCI's index
of Asia-Pacific shares outside Japan also rose
0.4 percent.

Elsewhere the British pound was gaining on the dollar
following comments by outgoing Bank of England Governor Mervyn
King, who said the bank was not seeking a further depreciation
in sterling as the currency was now properly valued.

The pound gained 0.5 percent to $1.5151, well clear
of a 33-month trough of $1.4832 set earlier in the week.

Oil markets were also drawing strength from the better U.S.
economic outlook with concerns over supply from the Middle East
added support.

U.S. crude oil gained 50 cents to $93.53 a barrel
while Brent rose $1.07 a barrel to $109.30.

Supply worries resurfaced when President Barack Obama, ahead
of a visit to Israel next week, said military force remained an
option if sanctions and diplomacy failed to thwart Iran's
nuclear ambitions.